Simnikiwe Hlatshaneni
Premium Journalist
3 minute read
26 Jul 2018
6:00 am

What’s the deal with Eskom’s Chinese loan?

Simnikiwe Hlatshaneni

The secrecy around the terms has been raising concerns because it affects taxpayers, with economists saying the loan 'will not be a free lunch'.

Pravin Gordhan warned that soon there will be no government money left for bailouts.

China’s timely move to rescue South Africa’s ailing state-owned utilities Transnet and Eskom through billions of rands in loans needs more scrutiny and transparency, experts have said.

The Democratic Alliance (DA) also called for disclosure of the terms of the Eskom loan of R33 billion.

The announcement of the loan by the China Development Bank raised eyebrows, hot on the heels of the entity’s announcement on Monday of its bleak financial results. The power utility posted a loss of R2.3 billion.

Eskom spokesperson Khulu Phasiwe said the entity was not in a position to disclose the terms of the R33 billion loan agreement, except to say it would be paid over the next 20 years, including a five-year “holiday period”, ending in 2023.

The funds would be used to inject capital into building projects at the Medupi and Kusile power stations and “nothing else”, he emphasised. He claimed there were no strings attached in terms of conditions to be met by Eskom.

“The China Development Bank is not like these other institutions … I will not mention any names. There are no other requirements, no calls for restructuring or privatisation. They just want to do business with us and for that money to be used for the reasons we have said we needed it for.”

But experts are sceptical, suggesting it is too good to be true.

“This is not a free lunch,” warned economist Dawie Klopper. “China will demand solid returns on their investment. It is a concern that there is so little known about the deal.

“We are sceptical of these transactions. If there is nothing untoward, make it known,” he said.

Economist Sean Muller said while certain aspects of SOE loan agreements or guarantees were commonly kept secret – even those between government and SOEs – this was still problematic. “It limits proper public and parliamentary oversight of these enterprises.”

Talkmore Chidede, researcher at the Trade Law Centre, also expressed concern over the secrecy around the terms.

“Often, loan agreements’ repayment terms are kept confidential for commercial reasons. But making SOEs’ repayment terms public is necessary for transparency. It affects taxpayers.”

The ailing entity’s ability to repay the loan without further burdening state coffers was also under scrutiny. “The loan will help embattled Eskom to stabilise financially, but will only be for the short to medium term,” said Chidede.

Klopper said this factor would also be determined by the strength of the rand, especially if the loan was to be repaid in dollars.

“If the rand depreciates, that loan is going to cost us a lot of money to repay – and if we can’t repay it, what then? Who is giving the guarantee on this loan? Is it a government guarantee?”

The Daily Maverick yesterday quoted Trade and Industry Minister Rob Davies as saying South Africa invested a lot more in China and other Brics countries, and emphasised the need for this imbalance to be corrected.

Chidede, however, said the increasing Chinese investments in South Africa was a crucial incentive for boosting economic growth and development.

The DA’s spokesperson for public enterprises, Natasha Mazzone, yesterday said the party would demand from the chairperson of the Eskom board, Jabu Mabuza, that the utility make the loan agreement public in the interest of taxpayers.

The department of public enterprises wouldn’t comment yesterday, referring The Citizen to Eskom.

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